HP aims to exit the pc, tablet market

Hewlett-Packard Co., a pioneering Silicon Valley technology company, wants to hit the escape button on the personal computing business it helped establish.

The world’s biggest seller of desktop and laptop computers said that it was considering spinning off its PC operations, that it will ditch its smartphones and TouchPad tablet computers and that it agreed to buy a major British business software firm for $10.3 billion in cash.

The plans amounted to a remaking of one of Silicon Valley’s most storied firms as it seeks to move away from the sagging personal computer business and toward the more vibrant and stable market for corporate software.


That changeover will increasingly include so-called cloud computing services, remote data centers that businesses and government agencies can use to store data and computer programs they run.

“Most of all, today’s about transforming HP for the future,” Chief Executive Leo Apothecker said Thursday. “HP is at a critical point in its existence, and these changes are fundamental to the success we all want as shareholders, investors and customers.”

Apothecker also released financial results for the company’s fiscal third quarter, ended July 31, that were slightly ahead of Wall Street expectations: Profit increased 5.5% and sales edged 1.3% higher.

But analysts listening in on a conference call were more focused on changes that had been part of the rumor mill all day.

The company disclosed its earnings and plans after the stock markets closed.

Shares of the Palo Alto company lost $1.88, or 6%, to $29.51. In after-hours trading, shares sank 10% more as investors processed the company’s many strategic shifts.

“The Street likes certainty, and HP is going to have a lot of moving parts now,” said analyst William Kreher of Edward Jones and Co. “This is a massive transformation from a hardware company to a software and services firm. There’s going to be a significant disruption in many of their major businesses.”

HP, whose early roots as a garage start-up helped establish Silicon Valley as a technology nerve center, is in one regard following in the footsteps of former computer titan IBM Corp., which sold its PC unit to Chinese firm Lenovo Group in 2005 for $1.25 billion.

IBM has since focused on software and services for large corporate systems, and its stock price has more than doubled.

HP has seen increasingly anemic growth in its PC business in recent years. Its worldwide computer shipments grew only 3% in the second quarter, reflecting a general slowdown as consumers opted to purchase smartphones and tablets rather than desktops and laptops, according to the latest figures from research firm IDC.

HP’s Personal Systems Group, which houses the PC operation, accounted for $9.6 billion, or about 30%, of HP’s revenue for the third quarter. But computer sales were down 3% from the same period last year.

Any spinoff of its computer business would not include HP printers, long a staple for the company.

The company had high hopes for its TouchPad tablets as a rival to Apple Inc.'s iPad and for its smartphones, both based on the WebOS software that the company picked up in acquiring Palm Inc. last year. But neither the tablet nor such phones as the Palm Pri, Pixi and Veer have caught on with consumers.

HP’s moves have been in the works for a while, but the disclosure came just three days after Google Inc. announced a deal to buy phone and tablet maker Motorola Mobility Holdings Inc. for $12.5 billion.

In the wake of that deal, industry analysts predicted that to stay competitive with Google and Apple, remaining mobile phone manufactures would have to find new allies or acquisition targets -- or get out of the business.

Meanwhile, HP posted earnings of $1.9 billion, or 93 cents a share, compared with last year’s third-quarter profit of $1.8 billion, or 75 cents a share. That was 1 cent a share above the average estimate of analysts polled by Bloomberg. Revenue rose to $31.2 billion from $30.7 billion.

Autonomy, based in Cambridge, England, makes software that allows firms to organize and retrieve email, documents and other media. Its shares jumped $11.96, or nearly 50%, to $37.76 on the news of the deal.